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Struggling with the Undertow: Non-Profits and the Law

The legal system can feel like an undertow, like an invisible tugging just below the surface of our daily lives. Some non-profit organizations are lucky to never feel its pull and manage to float along on the strength of their resources and the buoyancy of their focus. Some feel an occasional tug but manage, with resiliency and stability, to keep moving through their work.

Sadly, some organizations get yanked under and dragged out to sea before they can lift their heads again.

But the law, like an ocean undertow, is a knowable entity. It is something that can be assessed, considered and mitigated against before jumping into the deep water. More importantly, an organization that is already deep into its work can choose to pause for a moment to look directly at the undertow of the law and make sure the organization is safe from unnecessary risks.

Governance, employment law, human rights, contract law and privacy are five areas that legal issues often arise. If an organization has charitable status, a huge area that can create legal pitfalls and disasters is in efforts to comply with the Canada Revenue Act to ensure they can maintain that status. If an organization avoids thinking about these topics, avoids considering best prevention practices, they will quickly move to crisis mode if a legal issue arises.

Traditional approaches to ‘risk assessment’ are usually focused on narrow legal liabilities – things like financial mismanagement and negligence. Financial mismanagement is a serious concern for non-profits, but there are accessible and simple tools for lowering the risk of fraud or theft. Tools like annual budgets and public monthly statements comparing actuals to that budget; dual signatures on checks in which one must be a Board member; dual review of cash in and out of the organization etc.

While negligence and its criminal cohorts (think negligence is bad behaviour, criminal really really bad behaviour) especially where your organization works with children, are also serious problems, more often then not non-profits fire a staff or board member before they sue them for negligence or call in the police.

Which brings me to the area of law that, in fact, causes the most problems for non-profits: employment law. While lawyers are quick to point out that the area of law that lands non-profits in court is in the area of governance and compliance with the Society Act or Tax law, I argue that this is only because employment law works outside the realm of court – with the Employment Standards Branch and Labour Relations Board. And it also is true from a study conducted by me and local lawyer Martha Rans that non-profits themselves find employment law more problematic than governance.

Here are some examples of things that can turn from problem to crisis and potentially drag an organization out to sea:

An exiting employee announces they want to be paid out for all the overtime they did ‘volunteering’ for the organization after hours;

An organization lends their performance to another group for an event and there is damage to the space;

The Chair of the Board fires the Executive Director without consulting the rest of the Board;

An ED announces that the staff are all contractors so the organization doesn’t have to pay any CPP or EI, and stops paying any;

A Board makes decisions by email for two years before someone points out that the by-laws are the old generic ones from the Society Act and don’t allow for it.